Proceedings of the Standing Senate Committee on
National Finance
Issue 13 - Evidence - February 28, 2012
OTTAWA, Tuesday, February 28, 2012
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to study the potential reasons for price discrepancies in respect of certain goods between Canada and the United States, given the value of the Canadian dollar and the effect of cross-border shopping on the Canadian economy.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Good morning, ladies and gentlemen. I call this meeting of the Standing Senate Committee on National Finance to order.
[Translation]
This morning, we are continuing our special study on the potential reasons for price discrepancies in respect of certain goods between Canada and the United States.
[English]
Colleagues, today we are continuing to look into the issue of price differences between Canada and the United States with respect to certain goods sold in Canada. We are looking specifically at the manufacturers and importers of clothing and that industry this morning. In our first panel of the morning, we are pleased to welcome Bob Kirke, Executive Director, Canadian Apparel Federation, and Robert Silver, President, Western Glove Works. Mr. Kirke, you have provided us with a written submission, but I believe you have some opening remarks as well. Then I will go to Mr. Silver for some opening remarks, and then we will get into a dialogue.
Bob Kirke, Executive Director, Canadian Apparel Federation: Thank you. Mr. Chair, honourable senators, I would like to thank you for the opportunity to make this presentation on your study regarding price disparities. The Canadian Apparel Federation is made up of hundreds of firms in the apparel industry across Canada, and they represent every sector, product, and orientation in the industry. I am joined by Robert Silver, the president of Western Glove Works, a Winnipeg-based denim producer. Several other members of our association and other industry people will be appearing in the subsequent session on specific issues. I would like to take the opportunity to provide the committee with background on the industry, consumer prices for apparel, and other policies that impact our operations, and I would be happy to answer any questions that you have.
Consumer purchases of clothing make up a large share of total Canadian consumer expenditures. The retail apparel market for clothing in Canada is valued at $29 billion annually. That is retail, not institutional apparel.
In addition to the general significance of clothing as a staple of household expenditures, pricing policies of certain fashion retailers was among the issues that prompted the minister to refer the matter of price disparities to this committee. In previous hearings of the committee, you heard from several witnesses making reference to the apparel industry or issues of significance to the industry. I will try to build on that information and provide material, especially on trade policies relevant to the discussion.
As you have heard, approximately 20 to 25 per cent of apparel sold in Canada is made here. The balance is imported. The fact is that the apparel industry in Canada has changed dramatically in recent years, with a significant restructuring among domestic firms. Companies such as Western Glove Works can attest to that. Similarly, the fashion retail landscape has changed dramatically, especially in the last three years, as more and more fashion retailers, primarily from the United States, have opened here. It is changing more every day.
To give additional background, 2001 was the recent high-water mark for Canadian apparel production. During that year, the Canadian dollar was about 62 cents to the U.S. dollar. The industry had approximately 100,000 employees in direct manufacturing, and approximately 50 per cent of production was exported to the United States.
After 2001, employment began to decline as the Canadian dollar appreciated. With the appreciation of the dollar, the ending of import quotas in 2005, and unilateral Canadian tariff concessions to least developed countries, the industry faced a radically different environment and one in which domestic manufacturing became far more challenging. Over the last decade, we have had profound change in this industry.
However, the same pressures that created a volatile restructuring of the industry helped Canadian consumers enjoy lower prices. With 2002 as the base year, the consumer price index shows that prices for clothes have declined by 10 per cent over the last decade, even as prices for other commodities have increased by 10 to 40 per cent. Clothing is the only category where prices have declined over that period. By the most accurate and objective measure, Canadian consumers have enjoyed lower prices for clothing over the last decade. However, Canadian consumers do not look at the consumer price index to determine whether they got a good deal. They are readily able to compare prices for apparel sold in Canada to prices for that sold in the U.S, and they question any disparities in the prices, especially given the rise in the Canadian dollar. Canadian consumers now have the expectation that they will be able to purchase the same products at basically the same price as in the U.S.
This brings us to the current reference and the committee's mandate to make recommendations to the minister. For our industry, there is a challenge. It is how to bring prices, which are already at historically low levels, even lower. I would like to draw your attention to several issues, and I would be happy to answer any questions following my presentation.
In previous testimony, you have heard about regulatory issues between Canada and the United States. These are of significant concern to the industry. Currently, Canada and United States maintain different product safety standards, which add costs for Canadian consumers while offering little or no additional benefits to what exists in the United States. Similarly, minor differences in labeling provisions exist, which raise the cost of clothing. I am not referring to French and English labeling provisions but to situations where two slightly different requirements exist in Canada and the United States. There are also policies where we need to align regulations at the federal and provincial levels in Canada, under the Agreement on Internal Trade.
In essence, there is a single market for apparel in North America, and we need regulations that govern that market to catch up to that reality. In addition, there are a number of provisions in trade agreements, including NAFTA, that prevent traders from fully utilizing the benefits of these agreements. Rules of origin for apparel in many of our free trade agreements prevent Canadian firms from exporting and our trading partners from accessing our market. We need commercially viable trade agreements.
More than any other issue, tariffs have been identified as a major determinant of retail prices. While duties on many other consumer products are low, the average most-favoured-nation, MFN, rate of duty for apparel is 18 per cent. In the United States, the tariffs rates on apparel vary from product to product, but their duties are relatively high as well. If one wanted to gain an accurate comparison of duty rates on external sources, it would be simpler to compare duties on a product-by-product basis. In addition, in the U.S, there is a different valuation method used in customs. It is called "first cost, " and it can result in significantly lower landed costs, even for identical products and products where the duty rates are the same. I would be happy to discuss this further, as it is a fairly complex issue.
I want to present some information to the committee just by way of benchmarking the impact of tariffs. Apparel imports totaled approximately $9 billion in 2011. Of that total, $2 billion would likely have entered duty free under various free trade agreements or other tariff provisions. Therefore, approximately $7 billion in imports are dutiable at 18 per cent, and that total is approximately $1.25 billion per year. Those are the duties paid on imports.
To put this in perspective, here are a few estimates. I have picked these entirely at random based on current import statistics. The first example is women's jeans, where 2011 imports amount to approximately $235 million. The duties paid were approximately $20 million. In women's bras, there was $200 million in imports and approximately $27 million in duties paid. There will not be exactly 18 per cent for any of these items because some have a greater share of imports coming from duty-free sources. The final example I have given as a category is infants' apparel, where $214 million were imported and $27 million in duties were paid. I do not have equivalent statistics for the U.S., but apparel and footwear are the largest revenue generators in tariffs for the U.S. government.
Tariffs on imported apparel are the final remnant of our previous industrial policy for the apparel sector. We have given up import quotas that protected the industry until 2005, and protected its workforce, while retaining apparel duties at high levels. They do much less. In some respects, these issues would have been dealt with at the WTO under the Doha Round, but that has not advanced.
About five years ago, at the WTO, under the Doha Round, Canada supported a non-agricultural market access package featuring the so-called Swiss formula of tariff cuts. Under this formula, we would have cut tariffs for apparel in half over a short period of time. The question is whether the minister should wait for that round to conclude or address the issue on the basis of our needs and in a manner where we focus tariff cuts on those products where the impact of such cuts would be limited.
By way of concluding, as an industry, the apparel industry has always supported dealing with trade issues on a sector or a product basis. If there are recommendations to reduce tariffs on imports, they should be done by review of the specific situation in a given product or category. They should be done on a basis to minimize impacts on employment. We have had a significant reduction of employment over the last decade, and it is important that we retain what we have.
In the following session, several firms will make presentations concerning apparel duty remission programs currently in place, which remit duties to Canadian apparel manufacturers that import similar products. These duty or remission programs were established at the time of the Canada-U.S. FTA, and all these programs are based on the needs of individual subsectors. These programs are slated to expire at the end of this year.
By way of recommendations, I would encourage the committee to continue to address regulatory issues on product safety, labeling and other trade issues or mechanisms that are quite significant to the industry. As regards tariffs, the government should consider tariff reductions on finished apparel in situations where there are clear benefits to Canadian consumers and minimal negative impacts on any domestic producers. Any consideration of MFN tariffs should not focus on a comparison of the Canadian and U.S. external duty rates. Instead, the focus should be on whether Canada is well served by the existing tariff and whether changes to this tariff would be positive overall.
My third recommendation for the duty remission programs is that the committee consider the extension of these programs as they help minimize duties in some product categories. Again, these programs are set to lapse at the end of 2012. The impact would be to increase duties in the products covered and consumer prices.
That is the end of my remarks.
The Chair: Thank you very much, Mr. Kirke. You mentioned on two occasions in your submission the MFN capitalized rate.
Mr. Kirke: The tariff, yes. That is the most-favoured-nation duty. That rate would apply to all countries that are not covered by some kind of concessionary tariff.
The Chair: Thank you. We will now hear from Mr. Silver.
Robert Silver, President, Western Glove Works, as an individual: Good morning, ladies and gentlemen. It is a pleasure to be here even though it is a little intimidating.
Western Glove Works does not make gloves and has not dealt with gloves for 50 years. What we do is supply Canadians and Americans with blue jeans. We supply them under two brand names: Silver Jeans and JAG Jeans. To give a bit of weight to what my associate Bob Kirke said, in 2001, we had 1,200 employees in Winnipeg. We occupied 290,000 square feet of space and we worked three shifts seven days a week producing blue jeans. It was a wonderful time. We were protected by a very low dollar and we were protected by quotas and duties. That regime ended, and over the last 10 years we have changed from emphasizing production to emphasizing marketing design and distribution. We had to do that.
I fought the decline of manufacturing probably harder and stronger than anyone else in the sector. However, it was inevitable. We had to move our production offshore, to countries like China, Bangladesh, Mexico and India; we have done that. In 2001, our revenues with those 1,200 people were about $90 million. Today, our revenues in 2012 are projected to be about $190 million, but our employment is 100 people. That is the change in the sector.
Since 1921, we have been a Canadian company; since 1921, our head office has been in Winnipeg; and since 1921 we have proudly served the Canadian and the American consumer. We had to change the way we operated. We were no longer a low-cost producer in Canada; we were not even on the bottom 40 of cost producers. What we had to do as a company was emphasize what we thought we could be best at, and that is design, marketing, merchandising and customer relations in both the U.S. and Canada.
I was in Ottawa and participated in the NAFTA and FTA negotiations. I saw what we had to do. We had to look beyond our borders and become an international company. We had to become a company recognized on both sides of the border, and in Europe and in other places in the world. Today our volume is 70 per cent United States, 28 per cent Canada and 2 per cent Europe. We have transitioned into what the free trade agreement meant us to do. Our volumes went up, the contribution to the Canadian economy through our taxes and other things has increased, but our employment is certainly quite different.
We are an international company and we will continue to grow. Our goal is to be a $250-million company at the end of two years and to grow from there. We are probably one of the largest branded jean manufacturers in Canada, if not the largest. All of my fellow jean suppliers are gone. The large ones are gone. RGR, in St-Georges-de-Beauce, is gone; Jack Spratt is gone; Levi's has left the country from a production perspective; Keystone is gone; Aero Garment in Vancouver is gone. There are a few niche producers left in Canada, but, by and large, all the people I compete with have either followed me or I followed them along the same path. We are determined to be a global brand. We are determined to grow.
My son is in the business, and my hope my grandson comes into the business. We are determined to continue the institution that we started in Winnipeg. By the way, we were the first company in Manitoba to have an onsite daycare, and we still operate that daycare to this day. It is operated for the community rather than our staff because we have much fewer staff. Although there are only 100 people, I can assure you that they are far better paid than the average we paid in 2001. These are highly professional people on a North America if not a world basis.
Right now, cross-border shopping is not an issue for me because I am on both sides of this border. I do not care if the consumers go to the United States or to Canada to buy the product. As long as they buy my product, I do not really care. However, the Canadian consumer is at a disservice today.
The products I import mostly come from China. We have established huge infrastructure and relationships in China because it is the best place in the world today from which to buy and produce blue jeans. The technical aspects of it are tremendous. These are not cheap products. The first cost of most of our blue jeans from China is $20.
The same garment that I bring into Canada — nothing different; the labelling is the same; there is French and English on all the garments that go to the United States; everything is the same — from a duty perspective, I am 50 cents cheaper on each and every unit into the United States than in Canada, and that has to do with what Mr. Kirke referred to as "first sale. " The 50 cents relates to $2.50 to $3 at retail. That is what it means to each and every consumer. Even if we had the same rules of origin and the same duty issues as in the United States, the Canadian consumer could pay $3 less than they are paying today. However, the average price difference is about $10, or 10 per cent.
The other factors that make that up relate to the cost of operation in Canada. The minimum wages are higher in Canada and the distances are greater. The population is certainly a greater factor, because sales per square foot are about double in the United States. A reasonable operation in Canada that does $500 a square foot at retail would not survive in the United States. You have to be closer to $800 or $900 per square foot to survive, and you can get that there.
However, in Canada, it is much more difficult because our population base is smaller; we also have a huge distance to deal with, and there is a cost associated with that distance. We have taxes, CPP, EI, and all the other things that I cannot control and do not want to control. I think they are great things for this country, and I have no problem with any of them.
What we can control is the duty rate that we place on these garments. The duty rate on blue jeans coming into Canada is 17 per cent. The duty rate in the United States is 16.6 per cent, but the first sale has an added benefit, as I said, to the United States.
We have the ability to do that. The duties were brought into play many years ago to protect the domestic producer. I lobbied long and hard in Ottawa, when we were still producing, to eliminate the duties on fabrics. I fought and fought, until I gave up and went away. I had to. I could not keep that fight going. I had to move my production.
We even tried to predict duties on denim when no one in Canada made denim. Swift Denim left the country, closed up, and we were still paying duties on denim. We have the same problem today on garments. The theory of protecting the domestic manufacturer is a theory, because the domestic manufacturer has had to adapt, change, and do things differently in order to continue to exist.
If the 17 per cent that we are burdening the Canadian consumer with is to protect someone, I do not know who it is. It certainly is not me, because I have had to adapt. It certainly is not Levi's or Jack Spratt, wonderful folks who just decided to play golf. I do not know who it will protect anymore, but I will tell you that it is hurting the Canadian consumer. It is a further tax on apparel that protects no one.
I am here to say let us not wait for a new round. Let us not wait for a new Uruguay, Doha Round, to say this is the concession we will make. We do make concessions to certain countries to encourage them in their growth. Bangladesh is a prime example, but Bangladesh is not the producer for me. I will do some goods in Bangladesh, but China is the source.
If we are going to try to narrow the gap between the United States and Canada in this pricing, we have the ability unilaterally to change those duty rates. I cannot understand why we do not. I could not understand why we did not do it on textiles. I do not understand why we are not doing it on garments. Again, I will be fine either way you do it. It does not matter to me. However, it does matter to the Canadian consumer.
Over the years, my partner and I have invested in other businesses, and one of them is a chain of retail stores in Canada called Warehouse One. It would benefit greatly from having reduced tariffs, though not by itself; the competition would keep prices competitive, but the Canadian consumer would benefit. My company, Warehouse One, would benefit, but only in line with every other company in Canada that has the same access. If you granted duty-free access for Western Glove Works, I would be thrilled, but it is not right. It is for Canadians, not for Western Glove Works.
Those are my comments.
The Chair: Thank you very much, Mr. Silver. You have touched on a number of very interesting points.
I wonder if you could clarify something. Let us think of a scenario. Your company, a Canadian company, is involved in importing wearing apparel from China; and if it goes into the United States, would you import it directly into the U.S. or would it flow through Canada into the U.S.?
Mr. Silver: No, it would go directly into the United States.
The Chair: That is a 16.5 per cent tariff if it goes into the U.S.?
Mr. Silver: Yes, 16.6 per cent versus 17 per cent.
The Chair: That amounts at the import stage to 50 cents?
Mr. Silver: In combination with what is called "first sale. "
The Chair: Could you explain that?
Mr. Silver: In the United States, you pay duty on the factory direct price. In many cases in Asia, you go through a trading company. We have a partnership in a trading company. The trading company buys the goods from a factory. The price that the factory charges the trading company is the price on which Americans pay duty for goods into America.
In Canada, you pay the price on the total. On the $20.30 product into Canada, I am paying 17 per cent on $20.30. In the United States, I am paying 16.6 per cent on $17. That is the first-sale cost. That is not allowed in Canada, especially because the company in the middle is not at arm's length. I am a partner in that company, so I am not allowed to do that. The effect of that, on $20 jeans, is 50 cents. For $30 jeans, it is 75 cents. Once I take my margin and the retailer takes their margin, that is $3, just apples to apples, without doing anything to the rates we have today.
If the Canadian rates were reduced to 10 to 12 per cent, I think you would see, in the jean business, a much greater similarity between the pricing in the United States and the pricing in Canada, and you would prevent some of the cross-border shopping that exists today for that particular item.
Senator Finley: Good morning. We appreciate your input. I have one question. You mentioned first sale and you mentioned first cost. Is that the same thing?
Mr. Silver: Same thing.
Senator Finley: I just wanted to establish that there is no difference.
Mr. Kirke, in Canada, you mentioned that your organization represents, I assume, manufacturers, retailers, distributors, wholesalers, et cetera. You have said that 25 per cent of apparel sold in Canada is made in Canada. Would I be correct in assuming that that is, therefore, worth somewhere in the neighbourhood of $7 billion or $8 billion a year, based on your $29 billion total?
Mr. Kirke: I would say it is closer to 20 per cent, but you could use that as a figure. To be clear, there might be $2 billion of institutional or commercial garments in there, uniforms and things like that. That would include military uniforms and so on. Actually, at retail, it would be maybe a larger import share than those figures might represent. It might be as high as 90 per cent at retail.
Senator Finley: How high were the employment numbers at peak? You mentioned a peak period because of the dollar range and the tariff protection. I do not recall, but I think you mentioned 100,000 employees. Was that all in manufacturing?
Mr. Kirke: Overwhelmingly in manufacturing. If you were to look, there is actually a human resource council, maintained by HRSDC, and they estimate that currently there are about 75,000 employees in the apparel industry.
Essentially they have said that there are production employees but also a lot of others that tend not to be captured in the traditional employment numbers — design, merchandising, warehousing, and things like this. Mr. Silver would not be considered an apparel industry employer by traditional Statistics Canada measures. Again, echoing what has happened to Mr. Silver's company, the position of the human resource council is to say, "Here is the apparel industry today, overwhelmingly more focused on marketing and so on and so forth. " They came up with the 75,000 number for employment, but, again, that is not apples to apples. If we had 100,000 in production, maybe we were in the 30,000 range in production employment. We have obviously got a lot of others on the distribution, design, and merchandising side.
Senator Finley: Would I be correct in assuming that most of this employment was centered around Montreal, Toronto, Winnipeg, and Vancouver?
Mr. Kirke: Yes.
Mr. Silver: Traditionally, yes.
Senator Finley: Traditionally. Which of those areas — I am going to get to sector in a second — has probably been the hardest hit by the decline in apparel manufacturing, caught in a sort of "Asian squeeze, " if you like?
Mr. Kirke: You can look at it in a number of different ways. Over the last decade, Vancouver increased its employment and also the base of tremendously innovative firms. If you are looking at Lululemon, Mountain Equipment Co-op and Aritzia, these are very capable firms. If there is one centre that has done better than the others, relative to where it started, it might be Vancouver. Winnipeg was traditionally a very heavy factory-oriented industry, so it might have been hit the worst in terms of employment decline. Toronto, in the early part of the last decade, was overwhelmingly a knit-apparel producer — T-shirts, sweatshirts, and things like that. In 2003, Canada granted duty- free entry to countries like Bangladesh. Knits are much simpler than wovens, and it destroyed the employment base in Toronto. Each centre has been affected differently. Obviously, Montreal is the biggest. I do not know if Mr. Silver has a different comment about the relative impact.
Mr. Silver: At one time, in Winnipeg, there were 5,000 sewing machine operators. Today, that number is probably 300, if that, and those 300 are involved with the Department of National Defence, as well as a unique firm that is producing for Canada Goose. One of the interesting parts of this problem is that all apparel cannot be dealt with with one brush. Different parts of the apparel business do different things at different times, and you will see, after my presentation, people still in the production of shirts in both Montreal and Toronto.
In the jean business, it is a different story, so you have to look at it kind of on a line-by-line basis. Those firms that are still producing in Winnipeg have an incredibly hard time getting people to work there. It has always been a stepping-stone industry for immigration. Today, if we had not had a strong manufacturing component in Manitoba, we probably would not have any health services because none of those thousand people that I have sadly had to let go are out of work. They are all gainfully employed, most of them in the health care sector.
Senator Finley: I would like to go into the sector thing, Mr. Chair, but I realize that I have used up some time. I will go on a second round.
The Chair: Thank you very much. I have six senators, and we have approximately 25 minutes left. I would ask you to try and keep your question and answer in the time frame of about 5 minutes.
Senator Callbeck: Mr. Kirke, I wanted to ask you about a paragraph that you had in your presentation about the differences between the United States and Canada. One of the things you mention is the safety standards. You say they add costs, but they have little or no benefit to Canadians. I would like you to comment on that.
Mr. Kirke: Sure. Over the last three years in particular, the U.S. has changed a lot of product safety legislation. More recently, Canada has followed suit. I do want to be very clear that we have no problem meeting any safety standard that is established.
What exists, though, between Canada and the United States are similar standards, where the actual standard in question, for example, flammability — how quickly a garment burns — is subject to regulation. You do not want something that will burst into flame if you are near an open fire, for example. There is no disagreement that that is a bad thing, but, in reality, we have the same performance or the same specification. Yet, the testing for that is different in Canada than in the United States.
If you are a producer producing, as Mr. Silver does, 70 per cent for the United States, you will test to the U.S. standard. If you also want to sell that same garment in Canada, you have to test again, for no particular reason. It is simply because two standards development organizations developed two separate protocols over time.
There is the Regulatory Cooperation Council established between Canada and the United States, and that is the kind of thing that they should dig into because, in reality, most companies, worldwide, are producing for the U.S. market. When they look at Canada, they have to do another test, so it is an extra cost for the Canadian consumer. There are many other standards, either in the works or established, where, again, you have minor differences that do not really serve anyone's purpose. Again, I do want to stress, it is not about lowering standards. It is simply about making them more manageable for companies to meet. Again, this is a policy of the government, and we encourage them to go deeper, as fast as they can.
The Chair: I would like you to know that Mr. Kirke will be able to stay on for the second panel as well. Mr. Silver will not, so, if you have any questions of Mr. Silver, this is your opportune time to pose those questions.
Senator Callbeck: On a pair of jeans coming in from China, you say the tariff is roughly 50 cents.
Mr. Silver: That is the tariff difference between the United States and Canada.
Senator Callbeck: That means $3?
Mr. Silver: It is $2.50 to $3, depending on the markup.
Senator Callbeck: How many levels do those jeans go through? Are you selling them directly to the retailer?
Mr. Silver: Yes. Retailers' margins are quite astounding. A $1 cost relates to $2.50 to $3 at retail, depending on the type of retailer. Walmart is a lower margin, but most retailers have a markup of 65 per cent.
Senator Callbeck: What about the markup in the United States?
Mr. Silver: It is similar. Canadian retailers have a tendency to ask for large discounts up front, and they usually get them. United States retailers usually ask for rebates at the end of the year to make up the margin deficit. Neither of these is a very comfortable position, but they are different.
Senator Callbeck: For a pair of your jeans, what is the difference between what they would sell for in Canada and in the United States?
Mr. Silver: In Canada, they sell for $95, and, in the United States, they sell for $85.
Senator Callbeck: That $10 would be the tariff plus, in Canada, the wages, the retail space, and other things you mentioned.
Mr. Silver: Yes, absolutely. It is a combination of that. Certain things we can control, and certain things we cannot or should not. By lowering the tariff from 17 per cent to 10 per cent, you would narrow that gap to $1 or $2, making the trip or the purchase less rational.
Senator Callbeck: You would narrow that gap, which is now $10?
Mr. Silver: Yes.
Senator Callbeck: You would narrow it that much?
Mr. Silver: Yes.
Senator Callbeck: All right. Thank you.
The Chair: Next is Senator Buth, from Manitoba.
Senator Buth: Thank you, chair.
I am very familiar with your company and the location of it, of course. Mr. Silver, you have commented that you would be very supportive of lowering the tariffs for a domestic industry that really no longer exists. Are there groups within the apparel industry or some of your colleagues that would protest the elimination of the tariff?
Mr. Silver: I do not think it would be reasonable to eliminate the tariff at this particular point in time, especially since we use tariffs to encourage countries like Bangladesh to develop. However, to lower it is, I would say, for what gain? I cannot think of any that would argue it tremendously. There are a few domestic producers. The ones I can think of are a couple of firms that sell jeans for $300. I am not sure that they are affected by anything that I am talking about at the moment.
Senator Buth: Okay; good.
Senator Marshall: I do have a question for Mr. Kirke, but I am going to wait until the second half of the meeting.
I want to talk to Mr. Silver and talk a bit more about the cost difference, the $10. So that I understand you, you are saying that if you reduce the tariff to 12 per cent, you think there would be a savings of about $3 of the $10?
Mr. Silver: No, I am saying that if we reduce the tariff to somewhere between 10 per cent and 12 per cent, the difference would be $3.
Senator Marshall: Is there anything else? I recognize there are other factors accounting for that $10 price difference. You raised several, like transportation, CPP, EI premiums, the costs of retail space, but is there anything else in that $10 difference that the federal government would have control over? Is there any other area besides the tariffs that you were talking about?
Mr. Silver: I cannot think of another one that is so easy, so simple and so clean.
Senator Marshall: So you think we should focus on the tariffs and that there is nothing else there?
Mr. Silver: I do. To go back and talk about the cost of operation in Red Deer as opposed to Los Angeles, you cannot regulate those things, nor should we be going backward on a lot of the things that the Canadian employee benefits from.
Senator Marshall: Some of our previous witnesses have raised the issue of the Canada Border Services Agency and some of their requirements, the paperwork and the information that has to be provided to them. They are undergoing some changes and requiring additional information. Does that impact your business?
Mr. Silver: Absolutely. It impacts it to the point that I do not bring American goods into Canada, even though I have a large warehouse in Winnipeg. If all those things got simplified so that it involved a single inventory — I service Canada out of Winnipeg and I service the United States out of Seattle — and if I could serve everything out of Winnipeg, I would be pleased. However, the border regulations are very difficult and each and every shipment would require a customs thing and I would be spending more money than I would be saving.
Senator Marshall: That would make a difference to your business?
Mr. Silver: It would make a difference to my business, but I do not think it would compare to the type of saving you would get on tariffs.
Senator Marshall: I will put Mr. Kirke on notice and indicate that I am going to ask him a similar question with regard to border services and the impact that it has.
The Chair: Maybe he could comment on the NAFTA and country of origin impact on all of that at the same time.
Senator Marshall: Right, okay.
Senator Nancy Ruth: Mr. Silver, first, if I have understood correctly, when you are selling jeans into the United States, they are 50 cents cheaper?
Mr. Silver: That is landed duty paid 50 cents cheaper to my cost.
Senator Nancy Ruth: Yes, than here in Canada.
In your experience of other retailers in any apparel field, are the same item prices ever usually higher in Canada than they are in the U.S.?
Mr. Silver: Yes.
Senator Nancy Ruth: There are a variety of things that drive the difference, right?
Mr. Silver: Yes.
Senator Nancy Ruth: Does the reverse ever happen? If goods are higher in the United States, is there any market force that drives Americans to reduce their price to compete?
Mr. Silver: The market force for both Americans and Canadians is the incredible competitive nature of apparel. We are an over-retailed continent, let alone Canada. We have far too much retail, so we keep each other honest.
Senator Nancy Ruth: That is going on all the time?
Mr. Silver: Go to a mall and you will know what I am talking about. Go to the Mall of America in Minneapolis; you will know what I am talking about. Go to an outlet mall. There is no lack of competition to keep me honest and to come up with the value that the consumer will pay.
Senator Nancy Ruth: Thank you.
Senator Gerstein: Thank you, witnesses, for appearing before us — with excellent presentations, I might add. I might also add that I recall that Mr. Silver was the first individual in Canada to indicate, on our study being undertaken, that he wished to appear before us. I commend you on that.
Our study is about price discrepancies. Mr. Kirke made the statement in his presentation, Mr. Silver, that apparel imports totaled $9 billion in 2011 and that of that amount, $2 billion would likely have entered Canada duty-free. Referring to the $2 billion that came in duty-free — and wearing your retail hat — is there any factual evidence that the price discrepancy on those goods, whatever they might be, is less vis-à-vis the U.S. as distinct from those on which duty is being paid?
Mr. Silver: I believe there is.
Senator Gerstein: There is.
Mr. Silver: I believe there is. I still do supply them, but I am weaning myself off being a supplier to Walmart because it is frustrating and non-rewarding. All the garments I brought in for Walmart were from Bangladesh. I can assure you that they were cheaper than similar garments in the United States. The big war was not between Walmart U.S. and Walmart Canada, it was between Zellers and Walmart to see who could have the lowest price on these jeans. These jeans sold, and continue to sell, for $14.99.
Senator Gerstein: Could you be more specific to the committee and help us? Concerning the $2 billion that are currently coming in duty-free, what type of goods are they? Are they something that we would recognize very quickly, which we might focus on in terms of understanding that there is less of a discrepancy on these goods versus the ones that tariffs would be paid on?
Mr. Silver: I would suggest that it is across many sectors of the apparel trade, but if you went to the country of origin and you read "Made in Bangladesh, " you would have your answer. That is the bulk of where the duty-free garments come in. Some do come in from the United States under NAFTA and from Mexico under NAFTA, but if you look at the increase in the exports of Bangladesh, you will see that. You will see it in a lot of blue jeans, in very low or value-oriented retailers; and you will see it in some knit goods in almost every retailer that you will come across. Canadians have taken advantage of that. I have tried, but the quality and the specifications that I require to order to justify an $85 or $95 jean are far greater than I can get in Bangladesh today. I will continue working in Bangladesh, and maybe in five years I will get there, but we have a today problem.
Senator Gerstein: Thank you. Mr. Kirke, do you wish to add something?
Mr. Kirke: If you look at the trade statistics, Bangladesh imports are now, in 2011, $950 million, starting from a relatively low base in 2003. It might have been $200 million then. They are the only country that is rising faster than China.
Senator Gerstein: What I am taking from what you are saying is that items from Bangladesh, if we were to look at them being retailed in the U.S. and Canada, we would expect to see the price discrepancy on those items being less because they do not pay duty in either country.
Mr. Silver: Absolutely. That would be my expectation.
Senator Gerstein: Very helpful.
Mr. Kirke: At the initial hearing, when I believe Department of Finance officials came here, they did point out, and it is quite accurate, that the U.S. has a comparable but not nearly as effective program for least-developed countries. Again, Bangladesh is the first, Cambodia is next, and after that it might be Madagascar or something like that. It is really the two: Bangladesh and Cambodia.
As Mr. Silver said, it is relatively lower-priced goods and they are on the shelves. You can see places like Joe Fresh, for example, heavily represented. Fast fashion — I would not say it is disposable, but it is not valued for a long life span, possibly.
Senator Gerstein: If I may, Mr. Chair, just in conclusion, I know that Mr. Silver's company was founded in 1921, and I think he is being very modest about how he was able to adapt so that he is continuing to be as successful as he is today.
I commend you for that, sir.
Mr. Silver: It is a continual challenge. I have been through many iterations. I have made jeans for Victoria Beckham, Sheryl Crow and Calvin Klein, none of which have had happy endings. I have determined that my future is to make jeans under my own name, which I can control and I can grow and continue to contribute to the economy of our wonderful province and country.
Senator Finley: Mr. Kirke, I think I heard you say that if we enter into a process of tariff reductions, it should be done on a sectorial and progressive basis. Did I hear you say that? Could you give me some idea of what the sectors would be where you would prefer to see the tariffs reduced early, and why?
Mr. Kirke: Thank you for the question. No jeans are sold as uniforms. As a good example of how you could focus tariff relief on a consumer product, to start with — not the others, because I am not trying to contradict what Mr. Silver said — I can see that some people might say, "No, wait a second. I have enough problems already. My production is challenged enough. I do not want to take an 18 per cent tariff off. "
Is that significant? Is it the most significant thing in their operations? Maybe not, but it is there.
However, you have broad categories. I have given three examples: bras, infant wear and denim. We could go through others. You want to see products where there is not significant domestic production, where the companies that are left also import. It is not just that you make here or you import; a lot of companies do both.
We do not have that framework, but we could build the framework that says here are some to look at, here are some not to look at, and then within that, where is the consensus? I think you would find that there is maybe less opposition to this than there used to be — not universal, but there it is. Again, you try to find those products where there are no, say, uniform makers, because a lot of our domestic production has moved into the uniform and institutional markets.
That is a way to limit the impact, to focus it on things that impact consumers and minimize the impact on the remaining domestic producers.
Senator Finley: I guess the final answer I was getting to is this: If we have X thousand employees still in the business and we decided or we recommended that all tariffs on imported apparel be eliminated, what would be the job impact in these cities that we talked about earlier in the conversation, if the recommendation was just to get rid of the tariffs completely?
Mr. Kirke: Let me give you a few pieces of entirely contradictory information.
The most successful Canadian brand, probably ever, is Canada Goose. They succeed not because of any tariffs; it is because they are a highly innovative company. For the Canada Gooses of the world — and there are some — I do not think there would be a big impact, because they are on their own and they are doing exactly what Mr. Silver is doing, except they are doing it from Canadian production, which is tremendous. However, there will be others that would suffer, for sure. What percentage of the 30 to 35 reduction, I do not know. It is entirely conjecture on our part.
There are some companies that are producing here, but they are also producing 80 per cent of their goods in China. They are doing that stuff here on quick turn. It is not going to matter. If all of a sudden their imports are lower, they are fine. However, there are still 100 per cent domestic producers that would be impacted. Maybe you say half of that employment would be at risk.
Senator Finley: That could be a considerable number of people.
Mr. Kirke: Those are numbers you have to sort of pull out.
Senator Marshall: Mr. Kirke, I mentioned earlier Canada Border Services Agency. I notice from your website that you have been actively engaged or having active discussions with the Department of Finance on the tariff issue. There was also reference on your website to other issues, like labelling, product safety, and product disclosure.
We have had a number of witnesses here talk about the regulatory requirements of CBSA. A couple of witnesses have indicated that changes are pending or are in the works that they are not looking forward to and that will add costs to their business. Is that an issue for your members? If so, how big an issue is it?
Mr. Kirke: Yes. I do not know how to sort of wind it back. We have very specific issues. I spoke earlier about flammability. This is an extremely granular, fine issue relating to some people. We have children's sleepwear standards: Is the cuff this big or this big? Those things generate recalls.
All the regulatory issues are potential disasters for the companies that import, because they have to pull goods and execute these recalls. It may not be a huge problem.
When you get to customs, it is more or less the same thing. One of the problems Canadians face is that the American companies have become supply chain leaders. They can manage anything. It is the Canadian companies that tend to suffer.
There is regulatory compliance in the United States that is out of this world. They have people whose job is compliance counsel, one leading American brand. His whole job is just complying with U.S. customs.
U.S. customs has raised the bar, and CBSA is moving in sort of the same direction. First, I think it is a challenge to many companies just to figure it out. We do not have the people the Americans do.
As an additional piece of background, 15 or 20 years ago, U.S. customs went through a modernization act. They said, "Look, we are not going to check every container, but what we are going to do is penalize you like crazy when we find something. "
They went through sort of a risk management. They go through this profiling, essentially, and they target certain things. They target apparel because apparel has high duty. If you are not paying the right duty, they can recover a lot.
Let us go back to the Canadian scenario. Yes, CBSA is rolling out things like eManifest. You have heard from importers and exporters. There is a lot of concern about how fast they are going. U.S. customs did it over 15 or 20 years, and now they are doing it like a freight train. Do they have the people to manage that implementation? There are questions about that. That is one thing, that CBSA is moving very quickly. The second thing is that Canadian firms, in general, are not as well prepared as some American firms.
The last point — and this is a little bit off the target; this is the industry — is that because we have a very high duty rate, going back to these least-developed countries, if you qualify for the program, it is zero; if you do not qualify, it is 18.
Guess where CBSA audits? They audit those imports like crazy. For the first few years of it, people were importing, importing and importing. Then, three years later, CBSA would say — fully within their rights — "Could you please tell us where the yarn came from that went into the fabric that was in production in February 2004 and cleared Canadian customs in April? You claim zero duty. If you cannot, we would like the duty. "
Despite all these things — and this is one thing we call "commercially viable trade agreements " — it is pretty hard, three years later, to go to a contractor in Bangladesh and ask where the yarn came from that went into the fabric that was made in China that came to Bangladesh and that was sewn into a garment. That is what they are asking for. When you are in a high-duty environment, you essentially become a target. It is entirely separate from eManifest and those generic programs from CBSA, but it is a big challenge.
Senator Marshall: Where we are looking at the price discrepancy between the U.S. price and the Canadian price, will that issue regarding border services make a difference? Is it part of the price discrepancy?
Mr. Kirke: No, it is just a problem in its own right.
The Chair: Mr. Silver, do you have anything to add on that?
Mr. Silver: I think that tariff reduction, on a global basis, is inevitable. It has started in the Uruguay rounds, and it is going to go on. It is just a question of when and how. I think it is high time that Canada controls its destiny and does not wait for the United States or somewhere else to say, "This is what will happen. " Some people will complain, but, to me, this is locking the barn door after the horse is gone. We have seen it on the textile side, and we will see it on the apparel side. Production will come back to places in the world where it makes sense. In 20 years from now, maybe China will out-price itself in the marketplace. Will it come back to Canada? Unlikely. It will go to Vietnam or Africa. Apparel has been one of the few commodities that have helped to industrialize countries around the world. It has been used as such and will continue to be used as such. We have better ways of growing as a nation than protecting the horse that is already gone.
The Chair: On that point, I am afraid we will have to call this session to a close. Mr. Robert Silver, President of Western Glove Works, thank you very much for being here. Your insight is invaluable to the work of our committee, and we are glad to have been able to find this time to get together.
Mr. Silver: I appreciate that as well. It was either Turks and Caicos or this meeting.
The Chair: Mr. Kirke, we understand you will be able to stay on for the next session.
[Translation]
This morning, we are continuing our study on the potential reasons for price discrepancies in respect of certain goods between Canada and the United States.
[English]
In our second panel this morning we are very pleased to welcome Oliver Morante, Chief Executive Officer, John Forsyth Shirt Company Ltd.; Susana Stroll, President, Tess Sportswear Ltd. and Les Modes Sportives Valia Ltée; and René St-Amant, President, Empire Shirt; and finally we welcome back Mr. Kirke, Executive Director of the Canadian Apparel Federation, who was with us in the previous panel.
I believe that each of you have brief opening remarks, and I would ask you to proceed.
Oliver Morante, Chief Executive Officer, John Forsyth Shirt Company Ltd., as an individual: Thank you for allowing me to speak on behalf of my 250 associates at the John Forsyth Shirt Company Ltd. The John Forsyth Shirt Company Ltd. has been producing shirts in the Cambridge and Kitchener area since 1903, well over 100 years. We manufacture about 500,000 shirts in Canada today, which represents about 25 per cent of our annual sales. The rest of it is imported.
We sell shirts in both Canada and the U.S., and we have an extremely diverse customer list. You can find our shirts behind the counter at Tim Hortons when one of the people serves you coffee. Tim Hortons' corporate mandate is to have all of their uniforms still made in Canada. You will also find our products at Sears, at one end of the market, and Harry Rosen, at the other end. We do about 50 per cent of our business in Canada, and 50 per cent of our business in the U.S.
We are an approximately $35-million business. In the U.S, we sell to large retailers, such as Belk and Lord & Taylor, and we feel that you need a very large customer base to survive for over 100 years. We have a very innovative design team and an extremely skilled labour force in Cambridge. Prime Minister Harper, before he became the Prime Minister, toured our facility six or seven years ago. He actually sat down at one of our machines and tried to sew a straight line, and he commented on how difficult it was.
We are extremely proud of the quality that our associates turn out day in and day out. It is one of the reasons we have been able to compete in a global market.
The afternoon tenure of our associates is about 20 years. It is not unusual to find someone in our factory who has been there over 30 years. The product we manufacture falls under the Tailored Collar Shirts Remission Order. This program dates back to 1988. It was put in place when the free trade agreements were negotiated with the U.S. It was to help us kind of ease into the free trade area and to make sure that the playing field was level. Since 1988, the program has been extended three times anyway, and it has been extended for different reasons at different times.
The first time it was extended, Canada was giving free trade access to countries like Bangladesh, which has a good apparel base and is a low-cost producer. The next time it was extended, again it was because Canada was negotiating free trade agreements with other countries, which, again, tilted the playing field to our competitors. Canada continues to do free trade agreements with many countries, which we support. However, again, it will tilt the playing field against the domestic manufacturer.
We appreciate that the department has done good work on removing tariffs on finished fabric. That has helped, but that is only part of the solution. If manufacturers are no longer manufacturing in Canada, all that work was wasted because there is no one left to cut the product here.
As the government pushes forward on tariff relief on finished garments, as Mr. Silver indicated in his presentation, it is even more important to extend the duty remission program because it ensures a level playing field for domestic manufacturers.
Canadian manufacturing — and Mr. Silver touched on it before — has unique hurdles to overcome. We have a small population in Canada and a large geographical area. Minimum wages tend to be higher, rent tends to be more and our costs tend to be higher than in the United States. This places us, again, at a competitive disadvantage. In order to level that playing field, our duty remission is applied to our domestic costs. This has lowered our domestic cost, lowered our cost to our customers and, in turn, the consumer is benefiting from those costs. If the remission is not extended, these costs will go up; there are no two ways about it. If the duty remission is not extended for a period of at least seven years, it will threaten the existence of our company — a company that has been part of the Canadian landscape for more than 100 years.
I do not see any way to keep our manufacturing employees employed without this help from the government. All we are asking for is a level playing field. That is all this has really done over the years. We are a hard working and diligent bunch at John Forsyth Shirt Company Ltd. We have taken on the world for the last 100 years, but we need your help to keep that playing field. That is exactly what duty remission does. I agree with Mr. Silver that there is no one answer for our industry. Tariff relief could be an answer for the denim business or for other companies, but duty remission addresses the concerns of a group of domestic manufacturers.
We are confident that with your support we will keep this important program. It is a way to relieve tariffs. We are ready to submit these to the Department of Finance. I thank you for your time and I am willing to answer your questions.
The Chair: I think there maybe some more questions on how that works, but first we will hear from the other witnesses.
Susana Stroll, President, Tess Sportswear Ltd. and Les Modes Sportives Valia Ltée, as an individual: Good morning, everyone. I am grateful, too, to be here, to tell you about ourselves and what we do, and to tell you about our needs.
Unlike my colleagues here, we are completely domestic manufacturers. We make all our products in Canada. We are extremely proud to say that our product is Canadian. I brought some garments here to show you what we make so you will see what "Made in Canada " looks like. We put a Canadian flag on each label — you will see them. It is very much appreciated out there.
We like to say that to survive in this environment of imports and challenges, we do make magic every day. Over the years, we have changed our focus and our product line. We have never wavered from the certainty that, as Canadians, we should be designers and producers and we should be making our product here and not simply becoming consumers. We have carved a small niche for ourselves. We provide fashion items, and we have quick turns in approximately three to four weeks. To do so, we have to make a completely new line every four weeks, which is a humongous job, I am sure everyone would agree.
We cater to a smart consumer. She is approximately 18 to 30 years old. She has grown up price shopping and is proud to get a great deal and wear a steal. That gives her even more enjoyment. She is hooked up to the Internet and savvy about prices on pretty much anything. Our average price point, if you can believe it, is wholesale $5. When I show you the garments that we make, namely, pants, skirts, shirts, tops and dresses, you will say "Wow! That's real value. " That's what the customer wants, since $9.99 is still magic out there.
We have approximately 30 direct employees in our company. Our payroll is over $1 million, so we have well-paid employees. We have definitely women with us that have been working for over 25 years. Mostly, they are over 50 years old and would be unemployable elsewhere for the same type of pay.
We contract all our sewing and our cutting out. That includes about 2,000 to 3,000 additional employees that are indirect. We support fabric and button suppliers, fusing. All the components that go into a garment are dependent on us, mostly because we are the largest in our sector and our area.
Our colleagues have spoken about tariff-free garments coming in from Bangladesh. We have to fight this all the time, all these prices. About 25 per cent of the goods that we manufacture remain in Canada and 75 per cent go to the U.S. Obviously, the strong dollar has impacted our business and our bottom lines severely.
We like to invite people, like students from fashion schools, to come to our plants, to come to see us and what we do because we are manufacturers. There are not too many, and these kids should see what manufacturing is about first- hand and maybe not have to go elsewhere to do so.
Our government is generous throughout the world, and we need you today. We need you to continue with this tariff for us. In the absence of this reduction, our prices will absolutely need to go up. Manufacturing jobs will be lost; they will be at risk. We need a long-term extension of this duty remission. That way, we can continue to find ways to thrive and manufacture in Quebec.
Thank you for your time. I would like to show you my garments after.
The Chair: Yes. It may be a little difficult now, but we will stay around afterwards and look forward to seeing those.
[Translation]
Mr. St-Amant, from Trois-Rivières, you have the floor.
René St-Amant, President, Empire Shirt, as an individual: I would like to begin by thanking you. It is a privilege and an honour to be speaking on behalf of Empire Shirt this morning. This is the first time I have had the opportunity of meeting you. I would like to thank you for the opportunity that you have provided me with to introduce our 100-year- old company and to speak to you about the need to extend the duty remission order for shirts with fully fashioned collars.
Empire Shirt is a fourth-generation family business that was incorporated in 1894. We are only a little older than the Forsyth company. We are located in Louiseville in the county of Maskinongé. We are manufacturers and now also importers of uniform shirts, mainly in Quebec and Canada.
Due to certain circumstances, we had to start importing in order to fill the demand for low-cost shirts and also in order to support our Canadian production, which is less profitable than our imports. Domestic production is necessary for several contracts. We manufacture shirts for the Canadian military, the RCMP, the Ottawa Police, the Ontario Provincial Police, VIA Rail, Canada Post and Correctional Services Canada. These are all uniform shirts. Empire Shirt has 110 employees and is the oldest shirt manufacturing business in North America and even in the world, and still makes its shirts in the same place. The average salary of our employees is $15 an hour. This is very different from other countries. Our employees come mainly from the Louiseville region. They are actively involved in the economy of this city.
In the early 1980s, the Canadian government established a duty remission system for specialty shirts in order to help Canadian clothing manufacturers. At the time, the annual amounts were set based on the fabric, and Canadian production. Along the way, the rules were modified in order to facilitate the management of the program. This program was extended for another seven years in 1997. In 2004, there was doubt within the sector about whether or not the program would be extended. Several manufacturers had to shut down during that period. It was only in November 2004 that Empire Shirt learned, to its relief, that the program would be extended for another seven years, which brings us to 2011. Once again, there is doubt and insecurity within the sector.
It is important to understand that this program is essential. It allows us to maintain our Canadian production. It allows us to deal with very stiff competition. It also helps us to compete with those countries that can now, thanks to free trade agreements, bring their products into Canada duty free. This program especially helps us in keeping jobs in our region. We have to remain competitive and offer aggressive prices to our clients because in many tendering cases, prices are the bottom line. That is the case for our municipalities and for various levels of government. In these situations, we are up against importers, which makes our job twice as difficult.
Thus, the establishment of this program in the 1980s allowed our business to continue manufacturing shirts in Louiseville and maintain 110 jobs. If this program is not extended, we will be forced to layoff employees.
I take my contribution to the economic and social development of our region to heart, and we will do everything we possibly can to maintain these jobs. If my father-in-law were here today, I am certain that he would be proud to see how much I care about the business he passed on to me 13 years ago.
On behalf of our fourth generation, and I would also say on behalf of my four children who may one day take over this business, I would like to thank you for the time you have given me today. I hope that my arguments, and those of my colleagues, will convince you to extend this program that is so important to us.
The Chair: Thank you Mr. St-Amant. We will now proceed with questions from senators. We will begin with Senator Finley.
[English]
The Chair: Senator Finley is from Ontario South Coast.
Senator Finley: I would like to address a few questions, if I may, to Ms. Stroll.
You obviously create something from nothing, so there are a lot of components to this. Are any of the components bought offshore?
Ms. Stroll: Most of the fabrication, the fabric for our garments, is offshore, almost everything. Even if it comes from the U.S., it is offshore fabric. Nothing is made here; a little bit maybe in the United States the odd time, but primarily China.
Senator Finley: Mr. St-Amant, did you say your wage rate was about $20 an hour?
Mr. St-Amant: I said $15.
Senator Finley: Would that be about equivalent, your wage rate?
Ms. Stroll: We pay approximately the same. We have more weekly or monthly salaried people, but it is approximately the same, probably a little higher.
Senator Finley: Mr. Kirke, do you have any idea what the salary or wage rate would be in Bangladesh?
Mr. Kirke: Significantly lower. Actually, there is a consulting firm that does a global survey of wage rates. I asked them for their survey for this year, and it is not out yet.
Mr. Morante: The last number I have is about $200 a month.
Senator Finley: Perhaps significantly less than $15 an hour.
Mr. Morante: Basically, for a person on our sewing floor, the average would be around $17. They would start, in the low end, at $13, to as much as $20 to $22, depending on their efficiency.
Senator Finley: In that $15 to $17 range is what we are talking about, as opposed to somewhere in the neighbourhood of maybe $1.50 in Bangladesh, or less?
Mr. Kirke: Yes.
Senator Finley: You particularly, Ms. Stroll, mentioned that you needed further protection, or at least sustenance of protection, at 17 or 18 per cent. Obviously, that is not just to protect the hired labour. You must have some other advantages. If A is making it for $1.50 and you are making it for $15 an hour, that is a lot more than 18 per cent.
Ms. Stroll: Our huge advantage is the fact that I can get it onto the retail floor in three to four weeks. Perhaps they are able to pay the extra $1 or $2. The following season, that item will no longer be ours and we will have to create new product. We chase fashion, because that way we can charge the extra dollar or two. That is the difference. If we are talking Bangladesh, there is obviously less distance from Bangladesh than from us to the U.S. or to the Canadian floors, even though Canada is vast.
Senator Finley: It is not just the question of the labour difference that you are protecting here?
Ms. Stroll: When I say that we make magic, we are a lot of very able people. We cut costs everywhere and we save everywhere. This is just one help in the struggle to maintain our market share.
Senator Finley: Congratulations.
Ms. Stroll: Thank you.
Senator Finley: Mr. Morante, with regard to the tailored collar remission, as you described it, if I recall, are there other kinds of remissions?
Mr. Morante: Yes. There is tailored blouse and outerwear.
Senator Finley: Such as suits?
Mr. Morante: Not on suits. Winter outerwear. Those are the only three, I think.
Senator Finley: Could you tell me how that remission works?
Mr. Morante: Basically, how the remission works is that you are allowed to bring in a garment duty free. In the last round, you have a dollar amount that is allocated to your company, and it was based on production levels when it was first established in 1988. I am allowed to bring in a garment. I can remit that duty, duty free. Let us say I have $500,000 in my remission order. I apply that $500,000 against my domestic costs, and I lower my domestic costs by that $500,000. That is what we do, as a company. Other companies may choose to use it in other ways, but, effectively, it allows me to bring in and not pay duties on $500,000 worth of product that I import.
Senator Finley: It is a waiver of a duty, if you like. Okay. That is what I thought might be the case.
Mr. Morante: The way this program was first set up in 1988, it was really for those like Mr. Silver's company; it was just shirts and outerwear. Basically, it was to help domestic manufacturers transition. Most of the domestic manufacturers were both importers and domestic manufacturers. We have always been that, so we were able to get that duty break on the goods coming in. This was prior to duties being taken off of countries like Bangladesh.
Senator Finley: One last question, if I may. You, I think, mentioned that you would need this remission for at least seven years.
Mr. Morante: Yes.
Senator Finley: Why seven years? I know you would have adjustments. What kind of adjustments would you be making if this were to disappear? What could it possibly mean going offshore?
Mr. Morante: If the remission disappears, it really means, to our company, that our manufacturing will disappear in Canada. We just will not be able to compete anymore.
Senator Finley: The seven years would be used as a kind of exit strategy, I suppose?
Mr. Morante: It could be. We would like it extended past that, but seven years is something that transitions us to the next stage.
Senator Finley: Thank you.
The Chair: Thank you, Senator Finley. Ms. Stroll, did you pay duty on the input fabric that you bring in that you described earlier?
Ms. Stroll: Most fabrics are coming in duty-free today. Some have 3 or 4 per cent on them. To further support our domestic suppliers, we try to bring these fabrics in through jobbers, and so they do pay some.
The Chair: You do not have the remission on duty that we have heard from Mr. St-Amant and Mr. Morante? You do not have that on the fabric that you bring in to use?
Ms. Stroll: No, most of the fabric is now coming in duty-free. That change happened over the last few years. I guess Mr. Kirke could tell us exactly when. Some fabrics carry a smaller amount compared to before when it was 15 and 17 per cent. There is some that we bring in at 3 and 4 per cent. It is minor.
The Chair: Thank you.
Senator Buth: I have a couple of questions on something that you mentioned, Mr. Kirke. Mr. St-Amant, you also commented on it. Why is domestic production focused on uniforms? Is it a requirement for the RCMP, for example, that they have to buy Canadian?
Mr. St-Amant: The only contract where it is mandatory to have the shirts produced in Canada is for the RCMP. That is the only contract where it is mandatory.
For the other ones, for example the Ottawa Police, we produce the shirts in Louiseville, and we also import. There is no way for me to compete against any importers without importing some shirts myself. For the last 20 years, we have kept the 115 to 120 employees just because we are getting more and more imports to support our domestic production.
Mr. Kirke: There also are contracts where there is an informal preference for local, either through the unions or otherwise.
Senator Buth: Okay, good. Back to the duty remission, you have explained that it covers tailored shirts, tailored blouses, and winter outerwear.
Mr. Kirke: Sportswear as well.
Senator Buth: How many companies would be benefiting from this? Does this affect the price differential between Canada and the U.S.?
Mr. Kirke: If I could just maybe comment on the overall, I believe that, as of last year, 65 to 70 companies were participating in the program. It is a long-standing program and includes the people who were there at the beginning, if you will, so there is a large list of companies that could participate. However, some of them have restructured or changed their operations.
I think we are talking about 65 to 70 companies across the different orders.
Senator Buth: Does this affect prices between Canada and the U.S., do you think?
Mr. Kirke: Well, as the participants have said, it lowers their costs overall.
Senator Buth: Right.
Mr. Kirke: So yes.
Mr. Morante: Yes.
Mr. Kirke: Whether it is a disparity or not, in their operations here, they are able to offer lower prices because they participate in these programs.
Senator Buth: Can you comment on the price differences for your products between Canada and the U.S., then?
Mr. Morante: We saw both countries. We sell a product that we manufacture here in Canada for pretty well the same price in Canada and in the U.S. It is the same for the ones that we import. There is not that much pricing disparity in our selling price to the market. We are within a dollar of value for, say, a product we would sell at $25.
Senator Buth: Ms. Stroll?
Ms. Stroll: We sell the product in Canada and in the U.S. today at the same price. It makes no difference. As far as our competitors are concerned, Canadians are very attracted to buying from the U.S. market. The eagerness is there, so we have to be that much better. Certainly, there are a lot more domestic imports coming in from the U.S. than there are exports made in Canada going to the U.S. I do not think it is just pricing. It is probably fashionability as well. I am not sure that it has a huge impact on us.
Senator Buth: Okay.
Mr. St-Amant: We do not sell anymore in the U.S. We used to, and, when we did sell in the U.S, it was comparable. Right now, we do not have any sales in the U.S.
Senator Peterson: Thank you for your presentations. I take it from your testimony that you have been successful in dealing with the currency situation between Canada and the United States — the parity. Would it not beg the question of whether things like duty remission are imperative in order to maintain that, or do you want to comment that you have not dealt with it?
Mr. Morante: Let me comment on the first one. When the dollar was weak against the U.S. dollar — let us say 10 years ago — we were exporting a lot more product to the U.S. than we are today, but that was strictly due to the currency difference. Today, to answer your second question, we need that duty remission to stay competitive. Without that, we will not be competitive anymore. It just will not be possible.
Ms. Stroll: I would like to say that I do not think we knew how good we had it 10 years ago when the dollar was weaker. It has hurt us. Obviously, it hurt our margins and us too. We need this remission to help us hopefully find the next level of how to succeed as Canadian makers.
Senator Peterson: In that regard then, it is laudable that we were trying to help developing nations under the free trade agreement. We have done that and are doing that, but I think we also have a duty to support Canadian industry. Having said that, I would think that the duty remission should be made a permanent part of the infrastructure rather than —
Ms. Stroll: I like Saskatchewan.
Mr. Morante: We like the process, yes.
Mr. St-Amant: Definitely.
Mr. Morante: We have been arguing that for the last 25 years, and the government has been hesitant to do that. That is just the way it is.
Senator Peterson: Just the way it is. It is unfortunate. Maybe we can put that in our report and encourage that. Thank you.
The Chair: Are you aware of any international agreements that would preclude the government's doing just that?
Mr. Kirke: This program can only be renewed in a certain way since NAFTA, and it has been two or three times.
Mr. Morante: I think three times.
Mr. Kirke: There is no problem on that score, and I think the last time, in the Canada Gazette notice, it says precisely that. There is no impediment.
The Chair: The duty remission with respect to manufactured products brought in from Bangladesh is zero, and the Doha Round will reduce tariffs across the board. Even if this was made permanent, it would be permanently disappearing as we move into —
Mr. Morante: You are correct. At some point it will disappear, yes.
The Chair: Thank you.
[Translation]
Senator Hervieux-Payette: Welcome to you all. My questions will be about labour because employment is the primary interest of politicians. Are your businesses unionized?
Mr. St-Amant: Ours is not unionized. If my memory serves me well, according to my wife's grandfather the business was only unionized once in the 1950s, but currently it is not.
Senator Hervieux-Payette: And you?
Ms. Stroll: We only have three unionized employees and an outside company is responsible for our manufacturing.
[English]
Mr. Morante: We are completely unionized.
[Translation]
Senator Hervieux-Payette: Is everything done within your facility or is there piecework that is done at home?
Mr. St-Amant: One hundred per cent of our work is done at Empire Shirt. The only time we contract out is when there is embroidery because we do not have the equipment for that. Nothing is done at home.
Senator Hervieux-Payette: Is the embroidery done in Canada?
Mr. St-Amant: It is done in Canada, by a well-established business.
Ms. Stroll: We have subcontractors who do piecework.
[English]
Mr. Morante: We are 100 per cent in our plant.
[Translation]
Senator Hervieux-Payette: There are various ways to distribute products. You are a distributor for the RCMP, but you would also like to do that for Canada Post and for other corporations. This would give you a greater client base. In Quebec, there is Simons, which is a business in Quebec City — I would encourage my colleagues to buy there — and there is Les Ailes de la Mode.
With respect to large chains like The Bay — which is now American-owned — Wal-Mart and Costco, what are your distribution networks?
Mr. St-Amant: I would say that Empire Shirt specializes mainly in uniform shirts. When I took over in 1999, I decided of my own free will to stop producing dress shirts. I felt that there was more of a future in uniform shirts because of the need for standard types. When you are involved in exporting products, it is much harder to obtain uniform products. You can receive a perfect shipment from Bangladesh or China, but it may be more difficult to obtain that standard type each time and that is what we sell to our clients.
That is why you see corporations on our client list. The RCMP is an exception, because production is 100 per cent Canadian. For the OPP, the Ontario Provincial Police, if you are on parade, you do not want to look like a Christmas tree; you want uniformity in make and design.
That is our main trademark. I do not know if I have answered your question.
Senator Hervieux-Payette: Yes. It is interesting to see that you have a specialized product.
Mr. St-Amant: We are very different from Forsyth. Moreover, we are not competitors. I would also say that it is an area that requires a great deal of dexterity.
Senator Hervieux-Payette: My next question is for the two other witnesses. Is the Quebec market different from the Canadian one?
Ms. Stroll: Very different.
[English]
I am also a retailer in Quebec. I have a store in Trois-Rivières. The Quebec market is extremely difficult and challenging. We are so smart in Quebec.
Senator Hervieux-Payette: I am not saying that.
Ms. Stroll: We do business with Simons and mainly with chains that are extremely price sensitive or cheap and that are chasing fashion because if they have the six months to bring the product, then they really do not need us.
Yes, the Quebec market is extremely difficult.
Mr. Morante: We sell to Simons in Quebec, but I agree with Ms. Stroll. It is a very different market than the rest of Canada. The shirts that we produce for Simons we would probably not be able to sell in many other retailers across the country. Our largest customer in Canada is Sears, and we do sell to the Bay and to Mark's Work Wearhouse. Our business is retail. We have a retail business, whereas Mr. St-Amant is a uniform business. Part of our business is what we call career apparel and promotional product, which deals with another sector. However, 80 per cent of our business is retail in both Canada and the U.S.
Senator Hervieux-Payette: I have no problem with the fact that we give you as much chance to compete. I say that because I do not think we are at the table to negotiate how you could continue and, if possible, improve. I was surprised that the change in the cost of the dollar was not having a big impact on your business.
Mr. Morante: It had a huge impact, but we have adapted to it, as we have to adapt to everything. Over the last two or three years the dollar's been a little more stable, but it had a huge impact.
Senator Hervieux-Payette: To sell in the United States, I know. I have been to Chabanel many times. I am aware of that; I have many friends in this industry. However, the product now in both the U.S. and Canada, according to our study, seems not to be affected much by the fact that the dollar is almost at par.
Ms. Stroll: I think we have adapted.
Mr. Morante: We have adapted.
Senator Hervieux-Payette: Thank you.
The Chair: Senator Callbeck from Prince Edward Island.
Senator Callbeck: Welcome to all of you. Thank you for your presentations.
Ms. Stroll, you said that you sell as a manufacturer at the same price in the United States as in Canada.
Ms. Stroll: Pretty much today.
Senator Callbeck: What about the retail of those products? Do they vary a great deal between Canada and the U.S.?
Ms. Stroll: They vary somewhat.
The Canadian retailer does expect and want a higher margin, probably due to expenses. The American retailer will still keystone or double the wholesale price. They are inching up. They are aiming towards 56, 58 points, but they will still chase a magic price point more so than the Canadian.
Senator Callbeck: Does the fact that it is made in Canada make a big impact on consumers?
Ms. Stroll: More than I thought. Our manager in Trois-Rivières is happy to brag that the product is made in Canada. She assures me that people are extremely happy when they are able to buy made in Canada.
In the United States, it is hard to quantify, but they do call us "the Canadians " when we come down once a month. They do recognize that we make good product and that our product is making them money. It is retailing for them and they want it. Therefore, we will keep doing it.
Senator Callbeck: Are consumers in Canada prepared to pay a bit more because the product is made in Canada?
Ms. Stroll: I do not think so, no; not our consumer. Our consumer is younger. An older consumer may, perhaps, want to buy Canadian and pay a couple dollars; our consumer does not. She wants the best price. She wants to feel great in what she is wearing. She wants to shop all the time and — yeah, thank you — and she wants to pay, as I said, the least possible. Today there are bragging rights in paying very little, as opposed to before, when we were happy to wear designer. No, she will not pay extra. However, she is happy to get made in Canada; she is aware.
Senator Callbeck: Mr. Kirke, I wanted to ask you about something in your presentation earlier. When you were talking North American regulatory alignment, you also talked about the alignment of regulations between the provinces. Can you elaborate on that?
Mr. Kirke: As an example, there are regulations that were put in place about 50 or 60 years ago called the Upholstered and Stuffed Article Program. It is in three provinces: Manitoba, Quebec and Ontario.
It regulates all products that are padded. The top you are wearing has, I believe, sort of a quilted fabric. If you are selling that in Quebec, Ontario or Manitoba — and only those three jurisdictions in the entire world — you have to have a specific label that attests to the fact that it is new materials going in there.
If you are a Canadian company based in Quebec, you could register in Quebec and that would satisfy the requirements. If you are making your garment somewhere else, even in British Columbia, you would have to register in each of the three provinces — Quebec, Ontario, Manitoba — in which you intend to sell, paying a separate fee each time, renewed each year, and affixed to the garment.
Again, these are the three jurisdictions in the entire world that have determined this to be an important element of consumer information or protection, so that is held up as a non-tariff barrier to trade by the American industry, regularly writing in to the Office of the United States Trade Representative to complain about it, and I agree. It is a foolish piece of outdated regulation.
As the chair of this committee is well aware, new product safety legislation was introduced last year in Canada that supersedes all these types of provincial regulations, and they should be abolished. It is very simple. It is at a certain level just a money grab. It is a terrible imposition, so that is one example of the regulations that I was speaking of.
Senator Callbeck: Are there a lot of examples?
Mr. Kirke: This is the worst for sure, absolutely. I would also say that this is grandfathered, as other regulations are, under the Agreement on Internal Trade, and the industry minister is responsible for potentially amending this. These, again, were many years before the agreement came into force, and we would very much like the industry minister to, if you will, wave a magic wand and say we really do not need this anymore, we have the Canada Consumer Product Safety Act and thank you very much.
The Chair: Thank you. Interesting point.
Senator Marshall: My question is for Mr. Morante. He was earlier explaining how the duty remission program worked. I know that all three on our new panel are asking that this be extended. Did I understand you correctly that it is based on a fixed amount? You said $500,000. It is not a percentage, is it?
Mr. Morante: No, no, it is a dollar amount.
Senator Marshall: How was the dollar amount established? Has it changed?
Mr. Morante: No, it has not changed. It was established in 1988, and that is what your allotment was, and that dollar amount has continued through the years.
Senator Marshall: So if you were not there in 1988, you are out of luck?
Mr. Morante: That is correct.
Senator Marshall: My next question is for Ms. Stroll. I noticed that in your opening remarks you did support the extension of the program, but did I understand you to say that it really does not have a big impact on your business?
Ms. Stroll: It has a huge impact —
Senator Marshall: It does, does it?
Ms. Stroll: — because we are working with such small margins that it has helped us reduce our costs so that we can compete and we can remain in business.
Senator Marshall: Your business was in existence in 1988?
Ms. Stroll: Yes, it was. I think I started in 1984, so I guess I am not as old as some of the people at this table.
Senator Marshall: You got in on the ground floor?
Ms. Stroll: Yes, it was allotted. The premise when the program started was that you were a cutter, that you had a cutting room and that you were manufacturing domestic garments, and you were allotted a percentage. It was done by percentage of dollars.
Senator Marshall: At the time, and then it became fixed.
Ms. Stroll: It became fixed, and if I am not mistaken, it has changed a little bit throughout the years, but it became fixed.
Senator Marshall: In the last 25 or 23 years it has not wavered? It has remained constant. Okay.
Senator Nancy Ruth: Ms. Stroll, you were saying that people like to buy Canadian.
Ms. Stroll: I think so. I think so more now because I have looked into it. I was not always sure.
Senator Nancy Ruth: In the 75 per cent that you export to the United States, what kind of labelling do you use?
Ms. Stroll: I can show you if you like.
Senator Nancy Ruth: Does it have the Canadian flag on it?
Ms. Stroll: It does, but it is really teeny.
Senator Nancy Ruth: Is it smaller than the one in Canada?
Ms. Stroll: Yes, it is really small. It is this small. I do not know if they can see this on the TV. It is really small. Into the United States, we either do English or Spanish labelling, but they all have our Canadian flag. I even brought garments that have other retailers' labels, making us the private label maker, I guess, and even those people allow us to put the Canadian flag on them, so it is good.
Senator Nancy Ruth: In the United States market you perceive this to be an advantage rather than a flag from Bangladesh or something?
Ms. Stroll: A teeny, teeny edge. It makes us a little bit different, I guess.
Senator Nancy Ruth: Thank you.
The Chair: You are only using a teeny, teeny flag, you know.
Ms. Stroll: I would prefer a much bigger one.
The Chair: One supplementary, Senator Finley?
Senator Finley: Just back to the gentlemen from John Forsyth and supplementary to the line of questioning of my colleague, how much is that $500,000 that was worth $500,000 in 1988 worth now?
Mr. Morante: Less than that.
Senator Finley: A whole lot less than that.
Mr. Morante: It is worse than that, and I will tell you why. The duty remission has basically been cut in half, so if you had that $500,000 in 1988, you are only entitled to have $250,000 today, and forget about inflation at this point. It is real dollars. It was part of the concession that we had to make to get it extended last time.
The Chair: It is good that we should know that.
Mr. Morante: We would like it to get back to the level it was.
The Chair: Along with the Doha Round of negotiations, this may be something you should not rely on for too long. In any event, we have heard your submissions and they have been very helpful.
On behalf of the Standing Senate Committee on National Finance, we would like to thank you all for having been here today. Mr. Oliver Morante from John Forsyth Shirts in Kitchener-Waterloo-Cambridge, Ontario.
Mr. Morante: That is correct.
The Chair: Thank you, Susana Stroll, President of Tess Sportswear. We are looking forward to seeing your product afterwards.
Ms. Stroll: Thank you.
[Translation]
Mr. René St-Amant, President of Empire Shirt, thank you. You are in Louiseville, not far from Trois-Rivières?
Mr. St-Amant: Exactly.
The Chair: That is what I understood.
[English]
Finally, Bob Kirke, Executive Director, Canadian Apparel Federation. Thank you for being here this morning, Mr. Kirke, and providing us some background.
Colleagues, that concludes this session. We anticipate two supply bills will be referred today, and I am hopeful that I can convince the Senate Chamber to allow us to start our studies on Supplementary Estimates (C) tomorrow afternoon while the Senate is sitting. There will be no session tomorrow evening, and then Thursday for an hour to an hour and a half we would do Main Estimates, and that would deal with the Treasury Board aspect of it. We can then start our planning for next week.
The difficulty is that Treasury Board is not available tomorrow evening, and if we put this off for another week, we are getting awfully close to the end of the month when this has to be done. That is what we are working on. Thank you.
(The committee adjourned.)